Rising oil price not worrying airlines
A report in The Sydney Morning Herald says that times must be good in the airline industry, with two years since the head of the International Air Transport Association, Giovanni Bisignani, labelled fuel “the Fifth Horseman of the Apocalypse”.
That was after oil reached $US70 a barrel following Hurricane Katrina in the US, and airline stocks were reeling.
Yesterday, rather than bemoaning the price of oil surging to $US81 ($97) a barrel for the first time, the association raised its profit forecasts for the global airline industry and said it was “more optimistic for 2007”.
The association said the “stronger than expected demand for passenger traffic, and a general improvement in airline financial performance” had more than offset the recent surge in oil prices.
It added that efficiency gains in the industry had offset the recent increases in the cost of fuel.
It noted that labour productivity had increased by 56 per cent since 2001 and that non-fuel costs had fallen by 15 per cent.
Reflecting the bumper profit outlook for the Qantas in the coming year, the association upgraded its profit forecasts for the airline industry worldwide from $US5.1 billion to $US5.6 billion for calendar 2007.
While expressing concern about the potential effect of the recent chaos in financial markets, and the price of oil, on its 2008 forecasts, the association said, “The outlook is still for further improvement but risks have increased with the turmoil in credit markets.”
Taking into account its “more cautious view”, the association, which represents more than 240 airlines, lowered its profit forecasts for 2008 from $US9.6 billion to $US7.8 billion.
“The impact of the credit crunch puts some question marks over the industry’s performance next year and the continuing high price of fuel will become more difficult to mitigate with efficiency gains,” Mr Bisignani said in a statement.
On Monday Qantas reported its best ever load factors (the percentage of seats filled) for July.
UBS, which has a $6.70 price target on Qantas, said the airline’s 14 per cent rise in passenger revenue on the previous July, on top of a 2 per cent increase in capacity, represented “a new monthly record for unit revenue expansion in the current cycle”.
ABN Amro held its $6.55 target price, saying it remained positive about the outlook for the airline. Qantas shares lost 5c to $5.61 yesterday.
In its update, the International Air Transport Association also noted high-yielding premium traffic growth between Europe and the Far East.
The strength of long-haul routes into Australia was reinforced when the Abu Dhabi carrier Etihad announced plans yesterday to increase services into Sydney to 11 a week next March.
The airline’s Australian chief executive, James Hogan, said: “Sydney has been Etihad’s most successful launch since the airline began in 2003. Etihad launched services into Sydney in March.
Report by The Mole from The Sydney Morning Herald
John Alwyn-Jones
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